Dean runs a small coffee stand offering standard coffee (with or without milk) during the

mornings on campus. The following are the costs per cup of coffee compiled for

September and October 2016.

-------------------------------------- September 2016-----------October 2016

Number of cups sold ------------------1,000-----------------------500

Cost of cups ----------------------------$1,000---------------------$500

Cost of coffee --------------------------$200-----------------------$100

Cost of milk and sugar ---------------$20-------------------------$10

Rental of coffee stand ----------------$200-----------------------$200

Rental of coffee machine-------------$50------------------------$50

Salary of worker-----------------------$600-----------------------$600

Total cost -------------------------------$2,070--------------------$1,460

Cost per cup of coffee ----------------$2.07----------------------$2.92

Average price per cup of coffee ----$3.00-----------------------$3.00

Profit per cup --------------------------$0.93-----------------------$0.08

Dean is puzzled. He thought based on Septembers cost per cup of coffee he would be making $465 profit for October but instead he only made $40, almost a 96% drop in profit!

(a) Using your understanding of cost behaviour, explain why the profit per cup has decreased in October 2106 compared with September 2016. Show the relevant

computations to support your answer.

(b) Dean is thinking of expanding his coffee business to 10 other university and polytechnic campuses. In order to encourage his workers (who are students from

each campus) to increase sales, Dean is considering giving them a sales commission of 5 cents for every cup of coffee sold. As Dean is not able to be

physically at all coffee stands in the mornings, he will have to rely on his workers to prepare and sell coffee, collect and record daily takings, and inform him when

they need replenishment of coffee, cups and other ingredients. Dean expects to maintain the price per cup of coffee at $3 for at least the coming year.

(i) Give three (3) examples of management accounting information that will help Dean evaluate and choose the campuses to open his next three outlets. (Be specific and explain how such information would support his decision.)

(ii) Using your knowledge organisational architecture (OA), evaluate if Deans proposed commission plan would work. Explain.